Question & Answer

Describe the types of expenses that constitute miscellaneous itemized deductions and explain why these expenses rarely produce any tax benefits.

{Research}  This week Jim’s residence was heavily damaged by a storm system that spread destruction throughout the region.  While Jim’s property insurance covers some of the damage, there is a significant amount of uninsured loss.  The governor of Jim’s state has requested that the president declare the region a federal disaster area and provide federal disaster assistance.  Explain to Jim the income tax implications of such a declaration and any associated tax planning possibilities. 

A casualty loss from the complete destruction of a personal asset is limited to the lesser of fair market value or the property’s adjusted basis.  Explain the rationale for this rule as opposed to just allowing a deduction for the basis of the asset.

Describe the type of event that qualifies as a casualty for tax purposes.

Describe the conditions in which a donation of property to a charity will result in a charitable contribution deduction of fair market value and when it will result in a deduction of the tax basis of the property.

{Research}  Cash donations to charity are subject to a number of very specific substantiation requirements.  Describe these requirements and how charitable gifts can be substantiated.  Describe the substantiation requirements for property donations. 

Explain the argument that the deductions for charitable contributions and home mortgage interest represent indirect subsidies for these activities.

Compare and contrast the limits on the deduction of interest on home acquisition indebtedness versus home equity loans.  Are these limits consistent with horizontal equity?  Explain.

What types of taxes qualify to be deducted as itemized deductions?  Would a vehicle registration fee qualify as a deductible tax?   

Under what circumstances can a taxpayer deduct medical expenses paid for a member of his family?  Does it matter if the family member reports significant amounts of gross income and cannot be claimed as a dependent? 

Describe the type of medical expenditures that qualify for the medical expense deduction.  Does the cost of meals consumed while hospitalized qualify for the deduction?  Do over-the-counter drugs and medicines qualify for the deduction? 

Explain why the medical expense and casualty loss provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

Describe the mechanical limitation on the deduction for interest on qualified educational loans. 

Explain why Congress allows taxpayers to deduct interest forfeited as a penalty on the premature withdrawal from a certificate of deposit.

{Research}  Using the Internal Revenue Code, describe two deductions for AGI that are not discussed in this chapter.

Explain why Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.

Explain why Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) when employees can only itemize this cost as a medical expense.  Would a self-employed taxpayer ever prefer to claim health insurance premiums as an itemized deductions rather than a deduction for AGI?  Explain.

Describe how a business element is reflected in the requirements to deduct moving expenses and how Congress limited this deduction to substantial moves.

How is a business activity distinguished from an investment activity?  Why is this distinction important for the purpose of calculating federal income taxes? 

It has been suggested that tax policy favors deductions for AGI compared to itemized deductions.  Describe two ways in which deductions for AGI are treated more favorably than itemized deductions

When the COVID-19 epidemic struck unexpectedly at the end of 2019, company closures and instructions to stay at home severely disrupted the economy. Write a short essay outlining how COVID-19 has affected the growth and use of fintech. Do you think this terrible episode had a positive effect on the growth and use of fintech, or did it generate more problems than fintech could solve?

Can cryptocurrencies become a mainstream asset class similar to stocks and bonds? What characteristics, in your opinion, would draw investors to cryptocurrencies as an asset class? What aspects of them would be unattractive? (LO3)

The immutability of blockchain technology, which makes it very difficult to tamper with data stored on the network, is one of its primary benefits. In light of the various issues that people and companies encounter when it comes to forging and manipulating contracts and other business papers, how do you anticipate blockchain technology developing going forward? Provide a few instances of prospective applications for blockchain technology. (LO2)

Human occupations have been lost as a result of technological advancements throughout history. Do you believe that the advancements in fintech will have a comparable effect on employment, leading to the replacement of human jobs with intelligent robots and software? (LO1, LO4)

Adoption of fintech has occasionally resulted in cheaper financial service costs and more accessible financial goods and services. On the other hand, others could counter that adopting fintech comes with a cost because it necessitates owning cutting-edge technology that not everyone can afford. Do you think the financial system will be more inclusive as a result of fintech adoption, or will some marginalized groups still not be able to access those services? (LO1, LO4)